Negotiating a Lease Review With Your Landlord
The best time to negotiate your lease is before you move in. You have the most leverage before you commit to a space; after that, your landlord knows that you will incur large costs associated with moving to a new location.
The second best time to negotiate your lease is when you are renewing. This may pop up every 2 years, 10 years, or any time in between. You have more leverage negotiating a renewal if you’ve been a good tenant during your term. Paying your rent on time (or early), handling issues with other tenants or neighbors without requiring the landlord's involvement, and being a desirable business in the neighborhood all give you negotiating power during a renewal.
The third best time to negotiate your lease is now. Even if you are in the middle of a lease term, there is no reason that you can’t request a lease review. This is especially true if conditions in the market or the economy have changed. Think about it from the landlord’s perspective- if the economy has entered a recession, or the world is in the midst of a global pandemic like the coronavirus, there is little chance that they will be able to immediately re-lease your space if you have to move out because you can’t afford to pay. Even if they are able to lease the space to a new tenant they may not be able to charge the same rate that you are currently paying if conditions in the market have changed.
I'm not recommending that you ask to re-negotiate your lease if you don’t have a valid reason. But, if you do have a valid reason, like the rental expense is reducing your ability to continue on as a business, then you can and should ask for a review of your lease. In this case you and your landlord both have the same goal: to keep the space rented and to continue to bring in rental revenue. Your business going under causing rental payments to cease is not beneficial to either party.
Here’s what you should do to negotiate with your landlord:
- Understand your Current Lease- you can’t ask for different terms unless you completely understand what you have already agreed to. Look at the term and all expenses including base rent, CAM, triple or double nets, sales tax, late fees and percentage rent. Know exactly how much you are paying already and for what.
- Know What You Can Afford- given your current and expected future cash flow and income from operations, determine what you can afford to pay for rent. Would a temporary reduction do the trick? How about a free month? What if you paid less percentage rent or only if you hit a certain amount in revenue? Ideally you will identify a few scenarios that would meet your needs.
- Identify Your Best & Worst Case Scenarios- take the number(s) you arrived at in step 2 and determine what would be the optimal change in your lease terms and what is the least acceptable terms would be. Ideally you have enough cash to weather the storm even without a change to your lease, but you might be in a position where if your expenses don’t change you will be out of business. That is important to know before speaking with your landlord.
- Draft a Written Proposal of Terms- it is best to propose the new terms yourself instead of asking for an adjustment and then letting them figure out what that will look like. Ask for what you want, and then be prepared for them to counteroffer or say no.
- Speak to Your Landlord on the Phone or In Person- email is a last resort here; you want to connect with your landlord and have their full attention as you explain your situation. That is hard to do over email. Talk to your landlord and ask them if you can send them your proposed new terms as a follow up. This reduces the chance that they shut you down immediately because they weren’t prepared for what you are asking about.
- Follow-Up Like You Said You Would- send the proposed terms via email promptly following your talk with your landlord. In fact, send them even if they said they weren’t willing to negotiate; they may have a change of heart after having time to think through your initial meeting.
- Reach Out if You Don’t Hear Anything- Don’t let this go dead in the water if you don’t hear back; reach out and connect again via phone and email. If you have to, remind your landlord why it is in their best interest to review your lease.
- Get Acceptance of Terms in Writing- you may wish to get a lawyer involved here if can afford it, but at the very least get the new terms in writing and signed by both parties.